The healthcare sector, often touted as a defensive industry, is seeing a shift toward greater personalization due to the rising toll of chronic diseases. Amid this, healthcare stocks Addus HomeCare Corporation (ADUS), McKesson Corporation (MCK), and Cardinal Health, Inc. (CAH), rated A (Strong Buy) in our proprietary POWR Ratings system, have the potential to generate significant profits for investors.
But before we dive into the fundamentals of the stocks, let’s first understand the industry landscape better.
The World Health Organization (WHO) found that although global life expectancy is rising, Non-Communicable Diseases (NCDs) are taking an increasing toll on human lives. This creates immense operative prospects for the medical sector, which is becoming increasingly well-equipped to address personalized healthcare needs.
For instance, due to a growing geriatric population, the global home healthcare market, which was valued at $362.1 billion in 2022, is expected to grow at a CAGR of 8% from 2023 to 2030. Moreover, the international personalized medicine market is projected to grow at a CAGR of 7.2% over the same period.
On the backs of sophisticated technologies and rising expenditures, the global healthcare services market is anticipated to reach $21.06 trillion by 2030, growing at a CAGR of 8.3% from 2023 to 2030.
Considering the above figures and forecasts, let’s now dive into the Medical - Services stock fundamentals to understand the investment opportunity better, starting with the third stock.
Stock #3: Addus HomeCare Corporation (ADUS)
ADUS offers personal care, hospice, and home health services in the United States, serving the elderly, chronically ill, disabled individuals, and those at risk of hospitalization. The company caters to various clients, including government agencies, managed care organizations, insurers, and private individuals.
On August 1, ADUS announced that it had completed the acquisition of Tennessee Quality Care, expanding its services in Tennessee and strengthening its position in the home care sector. This aligns with ADUS' growth strategy and reflects its commitment to identifying complementary acquisition opportunities to enhance its service offerings.
For the fiscal second quarter that ended June 30, 2023, ADUS’ net service revenues increased 9.7% year-over-year to $259.98 million, while its gross profit increased 8.9% from the prior-year quarter to $82.32 million.
Its operating income improved 27.5% from the year-ago value to $21.54 million. The company’s adjusted net income and adjusted net income per share came in at $17.41 million and $1.07, representing increases of 18.3% and 17.6% from the prior-year quarter.
Street expects ADUS’ revenue to increase 11.3% year-over-year in the current quarter (ending September 2023) to $267.71 million, while its EPS is expected to increase 15.1% year-over-year to $1.08. Additionally, it topped the EPS estimates in each of the trailing four quarters, which is promising.
The stock declined 1.4% intraday to close the last trading session at $83.62.
ADUS’ POWR Ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ADUS also has a B grade for Growth, Sentiment, and Quality. It is ranked #4 out of 70 stocks in the Medical - Services industry. Click here to see the other ratings of ADUS for Value, Momentum, and Stability.
Stock #2: McKesson Corporation (MCK)
MCK is a global healthcare services company operating in four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International.
On August 16, MCK and Genpact Limited (G) declared that they had extended their partnership to enhance efficiency and automation in MCK's finance operations through AI and automation solutions.
This collaboration aims to drive cost reductions, improve customer experiences, and enhance agility in meeting healthcare industry needs, contributing to MCK's long-term strategic growth initiative.
On July 24, MCK announced a regular dividend of $0.62 per share of common stock, indicating a 15% increase from $0.54 per share in the prior quarter. The dividend will be payable to shareholders on October 2, 2023.
Its forward dividend of $2.48 yields 0.59% on prevailing prices. Its dividend payouts have grown at CAGRs of 10.7% and 9.7% over the past three and five years, respectively.
MCK’s revenues for the first fiscal quarter of 2024 (ended June 30, 2023) increased 10.9% year-over-year to $74.48 billion, while its non-GAAP gross profit amounted to $2.94 billion.
MCK’s non-GAAP earnings and EPS stood at $993 million and $7.27, representing increments of 16.7% and 24.7% from their year-ago values, respectively.
For the fiscal second quarter (ending September 2023), MCK’s revenue is expected to increase 8.3% year-over-year to $75.97 billion. MCK’s EPS is expected to come in at $6.13 for the same period, indicating a 1.2% year-over-year increase.
The company has an impressive surprise history, surpassing the consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 23.8% over the past six months and 21.3% over the past year to close the last trading session at $420.13.
MCK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Stability, and Sentiment.
Within the same industry, it is ranked #2. Click here to view MCK’s ratings for Growth, Momentum, and Quality.
Stock #1: Cardinal Health, Inc. (CAH)
CAH is a global healthcare company providing pharmaceutical distribution and medical product manufacturing, serving healthcare institutions worldwide in two segments: Pharmaceutical and Medical.
On August 30, CAH launched the next generation NTrainer™ System 2.0, a medical device designed to accelerate the development of oral coordination skills in premature infants, potentially reducing their NICU length of stay.
This innovation underscores CAH's commitment to improving patient outcomes and enhancing caregiver confidence in neonatal care, offering a solution that aids in pre-feeding skill development and aligns with the growth of the company's nutritional delivery portfolio.
CAH approved a quarterly dividend of $0.5006 per share in the same month, payable to shareholders on October 15, 2023. Its annual dividend of $2.00 yields 2.28% on current prices. It has a four-year average dividend yield of 3.35%.
For the fiscal fourth quarter that ended June 30, 2023, CAH’s revenue increased 13.5% year-over-year to $53.45 billion, while its non-GAAP operating earnings increased 24.4% year-over-year to $560 million.
The company’s non-GAAP net earnings and non-GAAP EPS came in at $397 million and $1.55, representing increases of 37.4% and 47.6% from the prior-year quarter, respectively.
The consensus revenue estimate of $55.03 billion for the first quarter of fiscal 2024 (ending September 2023) represents a 10.9% increase year-over-year. The consensus EPS estimate of $1.42 for the current quarter indicates an 18.5% improvement year-over-year.
The company has an impressive surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 31.2% over the past year and 26% over the past six months to close the last trading session at $87.75.
CAH’s robust prospects are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
CAH also has an A grade for Growth and B for Value and Quality. It has topped the same industry. Click here to see the other ratings of CAH for Momentum, Stability, and Sentiment.
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MCK shares were trading at $427.62 per share on Monday afternoon, up $7.49 (+1.78%). Year-to-date, MCK has gained 14.50%, versus a 17.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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